The Israel-Iran Conflict: Potential Economic Implications for Thailand

The escalating Israel-Iran conflict, marked by recent military actions such as Israel’s “Operation Rising Lion” on June 13, 2025, and Iran’s retaliatory strikes, is sending ripples through global markets and geopolitics. While Thailand is geographically distant from the Middle East, its open, trade-dependent economy is vulnerable to the fallout from this conflict.

Energy Price Shocks and Inflationary Pressures

Thailand’s economy, heavily reliant on imported oil and gas, is particularly sensitive to disruptions in global energy markets. Iran, a key OPEC member, plays a critical role in global oil supply, and its control over the Strait of Hormuz, through which 20% of the world’s oil trade flows, amplifies its influence. The recent Israel-Iran hostilities have already driven oil prices upward, with Brent crude futures spiking due to fears of supply disruptions. For Thailand, which imports over 80% of its energy needs, this translates into higher fuel and electricity costs.

Rising energy prices will likely fuel inflation, increasing the cost of transportation, manufacturing, and consumer goods. Thailand’s industrial sector, including automotive and electronics manufacturing, could face squeezed margins, while households may see higher living costs, particularly for food and utilities. The Thai government, already grappling with post-COVID economic recovery, may need to implement subsidies or tap into strategic oil reserves to stabilize prices. However, prolonged conflict or an Iranian blockade of the Strait could exacerbate these pressures, potentially slowing Thailand’s projected GDP growth of 2.5-3% in 2025.

Trade and Shipping Disruptions

The Israel-Iran conflict has spillover effects in the Red Sea, where Iran-backed Houthi attacks have disrupted shipping routes critical for trade between Asia and Europe. Thailand, a major exporter of rice, rubber, and electronics, relies on these routes to reach Middle Eastern and European markets. Increased shipping costs and delays due to rerouting around conflict zones could erode Thailand’s export competitiveness. For instance, container freight rates have already risen 20-30% in some routes since the conflict intensified, impacting Thai exporters’ profit margins.

Conversely, Thailand could benefit from shifts in global supply chains. As Middle Eastern markets face instability, Thai agricultural products like rice and canned seafood may find increased demand in alternative markets. The government should proactively negotiate trade agreements with unaffected regions, such as Southeast Asia or Latin America, to offset losses.

Tourism: A Blessing or a Challenge?

Tourism, which accounts for nearly 12% of Thailand’s GDP, remains a critical area of concern. Israel has long been a key contributor to Thailand’s tourism sector, with millions of Israelis visiting over the years. However, the ongoing conflict, combined with flight suspensions and economic challenges in Israel—highlighted by a reported GDP decline in 2024—could significantly reduce the number of Israeli tourists. This impact may be further exacerbated if instability across the broader Middle East discourages travelers from neighboring regions.

However, Thailand’s reputation as a neutral and safe destination could attract tourists from other regions seeking alternatives to conflict-affected areas. To capitalize on this, the Tourism Authority of Thailand must ramp up marketing campaigns emphasizing safety and affordability, targeting markets like China, India, and Europe. Enhanced security measures in tourist hubs like Bangkok, Phuket, and Chiang Mai will also be crucial to maintain confidence, especially given past incidents like the 2012 Iranian bomb plot in Bangkok targeting Israeli interests.